Ever felt overwhelmed by the sheer amount of choice on offer in the market? We're lucky in a sense, as the ASX 'only' has 2,200 or so companies, unlike some markets overseas.
Still it can be difficult to narrow down the list of companies worth investigating and it's not uncommon for an investor to wind up with a 'short-list' of 30+ companies. I'm working through mine, one stock at a time:
Carsales.Com Ltd (ASX: CAR) – trades on a P/E of ~26, yields 3.2% fully franked
Carsales.Com has been on my watch-list for a while now and I'm kicking myself for not picking up shares when it traded below $10 last year. Still, today's prices don't look exorbitant for a company with plenty of room to grow over the next decade or more.
In addition to its flagship Australian business, the South Korean and Brazilian websites are experiencing continued strong growth and look to be building a moat around them. Continued growth here is key to my thesis that Carsales is good value, but there's plenty more to like.
Side projects like Redbook, Stratton Finance and Tyresales.com reflect CAR's focus on 'verticals', or businesses that are complementary to one another. For example users can theoretically evaluate a car on Redbook, find a version of that car on Carsales, then use Stratton Finance to finance the purchase – even if it is a private sale.
Low debt, high cash and great margins are icing on the cake and Carsales presents as an attractive prospect at today's prices.
Contango Microcap Ltd (ASX: CTN) – P/E irrelevant, yields 8.1% partly franked
I first discovered Listed Investment Company (LIC) Contango Microcap, a few years back but was unable to participate and spent several years kicking myself as I watched it continually outperform the market.
As a LIC, Contango buys promising micro and small-cap stocks and uses their performance to beat the broader ASX. Investors must be careful to buy the company at the right price because paying too much of a premium would be wasteful when you could just buy the individual shares yourself.
Fortunately Contango had NTA after tax of $1.058 as of June 30, which compares quite favourably with the stock's last traded price of $1.065. I am sceptical about some of the companies Contango owns, like Slater & Gordon Limited (ASX: SGH) which is one of its largest holdings and has been shown to generate zero real value for shareholders.
Still, Contango's performance over the past few years speaks for itself and I consider this LIC second to Carsales, above.
1-Page Ltd (ASX: 1PG) – unprofitable, no dividend
Human resources company 1-Page is an interesting way to invest into the productivity benefits of technology. Using questionnaires and some proprietary algorithms, 1-Page reckons it can cut hiring times from 13 weeks down to as little as 4 weeks.
The appeal becomes obvious when you consider its big customers in the US, with two recent signings boasting a combined 320,000 employees.
I like the premise, the size of the potential market and the initial success. Big-name customers are a positive for investors, since they're unlikely to sign unless they see compelling evidence of value. Outsourcing the hiring process is also a huge incentive for companies with large HR departments and I predict that 1-Page will continue to experience success in attracting new customers.
However, 1-Page is unprofitable and relatively new to the ASX, which makes it difficult to make even a remotely ballpark guess at a fair price. Nevertheless, it is an interesting prospect and the way to go might be to invest a minimal sum initially, and increasing the stake over time to take advantage of price weakness. Before you do that, however…
